Research & Development – not just men in white coats!
You may have heard of Research & Development tax credits but thought it wouldn’t apply to your company. Indeed Research & Development conjures up images of workers in white coats, running tests in a laboratory. The majority of companies which claim Research & Development tax relief are nothing like this however.
To be eligible for a Research & Development claim, a company must be working to achieve a scientific or technological advance through the resolution of scientific/technological uncertainties, and the work must not be readily deducible by a competent professional in the field.
This is a really wide definition of Research & Development and can apply to a really wide variety of companies in many different industry sectors. Here are just a few of the types of businesses that would qualify.
Manufacturing is probably the biggest area of R&D activity in the economy. If you are developing new and innovative products, or making technical modifications and improvements to existing products, then there is a good chance of being able to put in an R&D claim, whether it is for products to sell to the public, equipment for the building sector, creating parts to sell to other manufacturing businesses or perhaps making improvements to your manufacturing process.
Software design is another area where there is a lot of potential for R&D claims for companies developing bespoke software and in the process seeking to achieve a technological advance. With the fast pace of advance in software and associated computer hardware most companies developing software solutions, whether for in-house use or for sale to customers, will need to be innovative to compete.
Even if you aren’t developing something radically new, if you are using new technologies to make significant improvements, for instance in running speed, cost or security, then you are probably involved in R&D.
Market gardening is an area where you might not expect there to be Research & Development work going on, but this is an area where many companies are innovating and therefore potentially undertaking R&D. This could be related to developing new varieties of plants, working on plant feed and fertilisers, or researching new growing techniques.
The food industry is another sector where you wouldn’t automatically expect R&D to be present, however modern food production is a very scientific process.
Any work on developing a new product or modifying an existing product could be R&D, whether that is to meet specialist nutrition requirements, to improve the shelf life, or even something as seemingly trivial as making changes to a biscuit so it doesn’t disintegrate when you dunk it in your cup of tea!
Architecture & Building – UK architects are amongst the most innovative in the world, and the architectural industry has been slow to take up Research & Development tax reliefs. Architecture work may well qualify for R&D reliefs if it is coming up with new building designs, incorporating new materials or building techniques.
This could be with a particular aim in mind, such as reducing costs or construction time or making a building more energy saving or environmentally friendly. It could also arise through the need to resolve a problem, perhaps because a stunning new visual design just won’t work without developing new building techniques.
These are just a few of the areas where there would be opportunities for claiming Research & Development reliefs which can result in a tax deduction of up to 225% of the qualifying expenditure, either to offset against your corporation tax liabilities or if you are making losses to surrender for a payable tax credit from HMRC.
So if you are a company which is liable to UK corporation tax and have been developing new products, services or processes or making appreciable improvements to existing ones, it could be extremely worthwhile considering whether you can make a claim.